Spain bailout fears grow

Monday, July 23, 2012 - 01:56

July 23 - Markets fled to safe haven bonds amid concerns Spain would be seeking an international bailout after some of the country's regional authorities asked for central government aid. Joanne Nicholson reports

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(SOUNDBITE) (Spanish) ASKED ABOUT THE POSSIBILITY OF A FULL-SCALE BAILOUT, SPANISH ECONOMY MINISTER, LUIS DE GUINDOS, SAYING:
"Absolutely not."
Absolutely not, was the response from Spanish economy minister Luis de Guindos when asked whether his country may need a full international bailout
A hundred billion euros were earmarked for Spain's banks on Friday but fears have been growing of a full-scale financial rescue after two of Spain's indebted regions asked their central government for help at the weekend.
The market's response has been to shift to safe haven bonds. U.S 10-year yields hit historic lows, and Spain's borrowing costs were pushed to new highs as their 10-year bonds jumped to
a whopping 7.55 percent.
European shares fell, and the euro hit its lowest level in two years.
But de Guindos says it's not just Spain that's the problem:
(SOUNDBITE) (Spanish) SPANISH ECONOMY MINISTER LUIS DE GUINDOS SAYING:
"There are irrationalities in the behaviour of the markets in the short term, of extreme nervousness, which the government can't get into it. Spain is not the only one
affected. Spain is in this situation because its deficit has affected the eurozone but Spain is part of the future of the Eurozone."
The market is far from reassured, say David Jones, chief market strategist at IG Index.
(SOUNDBITE) (English) DAVID JONES, CHIEF MARKET STRATEGIST, IG INDEX, SAYING:
"Over the weekend there's been talk that six other regions will need it as well. I think it's something that the ECB and the euro zone as a whole will be very keen to try and avoid a full
bailout for spain but it's difficult to see it going any other way at the moment."
New data shows that Spain's economy sank deeper into recession in the second quarter. In its monthy report, the Bank of Spain said economic output sank 0.4 percent between April and June - an accelerating decline
compared with the first quarter.
Joanne Nicholson, Reuters

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